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Hooked on Improvement
Tolerance Masters uses obsessive attention to continuous improvement to regularly achieve 15 percent annual growth in revenue.
March 2016

Verne McPherson, CEO, Tolerance Masters, Circle Pines, Minnesota 
Verne McPherson, CEO, Tolerance Masters

Verne McPherson remembers attending seven lean manufacturing seminars in six years before he and his colleagues experienced a moment of revelation that set them on a journey of nearly obsessive devotion to continuous improvement.
 
McPherson is CEO and majority owner of Tolerance Masters, a precision machining shop based in Circle Pines that specializes in aerospace.

He and his staff initially dismissed lean, he says, because it felt like just another “flavor of the month.” They kept returning to lean seminars because customers requested it—until that final session at Parker Aerospace when he experienced what he calls a lightbulb moment. “I finally figured out what they were talking about,” he says.

When they returned to their plant, he told his leadership team, “I don’t care what you guys say about lean manufacturing, we’re going to do it. Now.” 

It was a seminal moment in the life of the company. Today, McPherson and every one of his 55 employees are dedicated to the process of improving. “All of my people are on board,” he says. His conference room testifies to that fact. Two of its walls are covered with frequently updated three-ring binders that chart every aspect of his manufacturing processes. “We’re really into tracking,” he says.

And they’re equally into finding and solving problems. “Like many smaller companies, for years we looked at (ISO) audits as evil things. Now we look at them as opportunities. If they come in here and have no findings, they didn’t look hard enough—because I can find things. He says Tolerance Masters self-audits different processes every month.

McPherson says the company participated in several training sessions with Enterprise Minnesota to tune up its marketing, lean 5S, and value stream mapping. “Every time we went through something, we learned something new.”

“Most people look at our shop and say, ‘wow, it looks like a hospital. You could eat off the floor.’ I say, ‘that’s nice of you to say, but we see the dirt.’ That’s where continuous improvement really comes to play. We really want to find the mistakes.” The company created a “quality clinic,” a separate room in the plant in which groups of employees, even sales people, convene to dissect, analyze and solve problems.

Tolerance Masters has not had a repeat defect in five years, according to McPherson.

Other results have been dramatic. In the seven years before their conversion to continuous improvement, McPherson says the company had “chugged along” at basically the rate of inflation. Since then, Tolerance Masters has notched steady annual growth of about 15 percent. What’s more, the $12 million company is currently in the second year of a 15-year plan that envisions 15 percent annual growth each year. 

In 2005, the company’s cost of labor was 27 percent; in 2015, ongoing efficiencies had slashed that cost to just over 14 percent, without eliminating a single employee. 

“We plan to be the best machine shop in the world,” McPherson says. “Everybody on my staff understands that, gets it, and wants to be the best. What that means is we’re going to have the best place to work. We’re going to be the best vendor for our customers, we’re going to have the best profits, were going to have the best payroll, we’re going to have the best benefits, we’re going to be best to the environment. We’re going to be in front of everyone else, and I think we’re probably in the top 5 percent, maybe in the top one percent now, which means we don’t have that far to go to be the best.”

McPherson doesn’t expect to be in ownership when the company reaches the end of its 15-year plan. He’s already transferred the title of president to Randy Koppes, who manages the company’s day to day activities. “He’s down there in the trenches, and I’ve moved to the 30,000 foot level to devote time to thinking and planning.

“I don’t rock the boat, but I do steer it.”

McPherson once expected ownership of Tolerance Masters to devolve to one of his customers. No more. Today, he envisions keeping it within his family of employees. His philosophy is: “Bring in young people who are motivated, train them in our methodology, and eventually hand them the reins—and then hand them the keys, with the hope that they’ll do the same thing.” 

But finding that next generation of employees might be a challenge. “They’re not easy to find, but I’m not sure they ever were.” Still, he’s already facing some retirements. His workforce includes several people in their 70s. One just retired at 75.  

He disdains hiring inexperienced employees.  By having the objective of being the best machine shop in the world, we feel we’ll be able to take whoever we want from the other machine shops in the area. I know that sounds like theft and that’s what it is, but we want to be the place everybody wants to work. That will help solve that problem.”  

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